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Dar, diplomacy & economic viability

Huzaima Bukhari, Dr. Ikramul Haq & Abdul Rauf Shakoori

 “Our foreign policy is one of friendliness and goodwill towards all the nations of the world. We do not cherish aggressive designs against any country or nation. We believe in the principle of honesty and fair play in national and international dealings and are prepared to make our utmost contribution to the promotion of peace and prosperity among the nations of the world. Pakistan will never be found lacking in extending its material and moral support to the oppressed and suppressed peoples of the world, and in upholding the principles of the United Nations Charter”—Quaid-e-Azam Muhammad Ali Jinnah

Our foreign policy is inspired by the guiding principles laid down by the Father of the Nation. The foreign office is fostering friendly relations with countries around the globe presenting Pakistan as a dynamic, progressive, moderate, and democratic Islamic country. It is entrusted with the responsibility of safeguarding national security and geo-strategic interests. With the rapidly changing world dynamics and economic interests at the center of all bilateral partnerships, an inclusive foreign policy crafted to complement sustainable development is the pathway to Pakistan’s future. Hence, a robust foreign policy can help stimulate economic growth and consolidate our commercial and economic cooperation with the international community. However, this goal cannot be achieved without ensuring an enabling environment at the domestic level so that businesses can flourish and progress. Export proceeds are the only viable solution to bridging the gap between foreign currency inflows and outflows. The unwise policy of continuous reliance on debt instruments is anti-growth. Borrowings are neither cheap nor sustainable, thus, a comprehensive multidimensional strategy is required to increase Pakistan’s exports.

International trade has reached new heights and scales over the last few decades. With transformation in technology and better infrastructure, the world has turned into one big marketplace where everyone can showcase and sell commodities without any restriction of physical boundaries. This evolution has helped countries boost their economies, leading to higher income levels and reduced poverty. However, Pakistan has not been able to benefit from rising levels of global trade. According to International Monetary Fund (IMF), Pakistan’s exports peaked at about 15% of GDP in 2003, but started showing a declining trend since 2011, and currently are hovering around 11% of GDP. Similarly, the export volume growth is at a standstill since FY 2007. Hence, Pakistan’s global exports share has declined by almost 40% since the early-1990s to only 0.13% of world exports in 2020. This is because of multiple factors.

Pakistan’s export basket consists of standard non-technological items like textiles, clothing, vegetables, food products, and animal hides and lags behind on evolving technological trends. Based on export receipts statistics for fiscal year (FY) 2021-22, the textile and vegetable product sector constitute almost 70% of the export proceeds. Further, the portfolio of items offered i.e. the number of unique products exported has declined over the period. Pakistan exported 2,824 unique products in 2019 compared to 2,987 in 2009. Further, the cost of inputs is constantly increasing in Pakistan, as borrowing rate is above 15% per annum, and inflation is even higher than 20%. Moreover, the import-based inputs are restricted and businesses are finding it difficult to keep their business cycles running with such unprecedented challenges. Exporters are continuously losing their competitiveness.

The government needs to support small and medium enterprises (SMEs) and encourage new and small exporters. They should be trained in international best practices to meet the required standards for export. Trade bodies and relevant ministries must facilitate them in discovering the relevant markets for their portfolio of items; the public and private sectors must work together to invest in training and human resource associated with the export industry. The government must help businesses, especially SMEs and new startups in the export market to comply with international standards to secure the required certifications.

Based on data for FY 2021-22, Pakistan’s exports seem restricted to a few jurisdictions having failed to explore new markets to expand the export volume. Statistics show that top five countries constitute 50% of Pakistan’s total export proceeds with the United States of America (USA), like in previous years, taking lead with an export value of US$ 6.798 billion followed by China at US$ 2.78 billion, the United Kingdom at US$ 2.2 billion, Germany at US$ 1.7 billion, and United Arab Emirates US$ 1.6 billion during FY 2021-2022.

Pakistan is still relying on the traditional methods to generate foreign exchange. The major export items to the USA include textile products, such as house linens, knitted sweaters, and clothes. The same is the case with China as well with the export of refined copper, rice, and cotton yarn. According to the US Census Bureau, Pakistan’s total exports to the USA till July 2022 were recorded as US$3,710.0 million, whereas import for the same period was recorded as US$ 1,994.1 million. Indian exports to the United States for the same period were US$ 51,715.9 million and imports recorded as US$ 27,303.8 million.

Unfortunately, Pakistan’s volume of trade with its neighbouring countries is very low. China is considered an all-weather friend of Pakistan with a population of over 1.42 billion. Despite having good terms with Pakistan, our total exports could not surpass 5 billion in the last 75 years. Pakistan’s volume of trade with India was recorded at around US$2.42 million in 2022 despite sharing common culture, language, etc. We need to do some soul searching as to why despite having a strategic location, our export industry is shrinking on a daily basis.

The major factor in our economic failure is political instability. Undue interference in the matter of executives and inconsistency in our economic policies, coupled with imprudent foreign policy, is costing us heavily.  Apart from India, we have failed to develop good relations with our immediate neighbouring countries Iran and Afghanistan. Russia can be another strategic partner, but we have serious trust deficit issues with it. With the existing foreign policy, we cannot achieve the desired results even in the case of the Central Asian States—rich in natural resources—notwithstanding having common religious heritage.

Pakistan has suffered a lot economically in the last few years. Among many other maladies, inflation continues to have a huge negative impact. It was partly due to incompetence and/or wrong economic policies of the previous government of Pakistan Tehreek-e-Insaf and partly thereafter as a result of following the same policies by the financial managers of the alliance government of Pakistan Democratic Movement. As, expected, it led to the unceremonious exit of Miftah Ismail, who in the name of saving Pakistan secured just US$1.17 from IMF by imposing oppressive taxes of around Rs. 2000 billion. He failed on almost all the “promises” he made.

Entry of Muhammad Ishaq Dar, the economic wizard of Pakistan Muslim League (Nawaz)—PMLN—,  as fourth-time Federal Finance Minister, who took oath on September 28, 2022, is marred by daunting challenges of hyperinflation, mammoth losses of around US$ 30 billion due to devastating floods after unprecedented rains, shortage of food items, especially wheat, industrial recession, high interest rate of 15%, depreciating Pakistan Rupee to more than 30% and unpopular decision of levying Petroleum Levy to the extent of Rs 50 per liter as agreed with IMF—just to mention the most immediate ones.

Pak rupee gained significantly even before his taking oath and there is a mood of jubilation in PMLN camp. Only time will tell how he rescues the economy in deep trouble and provides relief to the masses. It will be unfair to pass any judgement on the basis of his past performance that is highly controversial. At this point of time, objective conditions are quite different. However, one should give him a chance to unfold his mantras before projecting doomsday scenarios. Actions speak louder than words and it squarely applies to all, hence there should not be malice towards one—if not all!

Ishaq Dar, having rich experience in ministry of finance, also served as commerce minister, thus, one can expect from him not focusing on revenue generation by way of indirect taxes alone, but play a larger role convincing the Prime Minister for improving trade through paradigm shift in foreign policy. Prime Minister in his address before the United Nations rightly emphasised the need for peace and stability through international and regional cooperation. Hopefully, in the coming days, concentrated and combined efforts will be made towards better economic diplomacy.

Pakistan must explore new markets and enhance the outreach of its goods and services through representation covering diplomatic blocks like Organization of Islamic Cooperation, South Asian Association for Regional Cooperation SAARC, and Shanghai Cooperation Organization. The ministries of finance, foreign affairs, commerce and trade must work closely together to negotiate/renegotiate free trade agreements (FTAs) and avoidance of double taxation agreements with countries where we can have comparative advantages. It will help boost exporter’s access to different international markets and ensure earning much-needed foreign exchange. There is a consensus that our continued reliance on reckless borrowing and burdening the businesses/people with excessive taxes/duties are detrimental to growth, internal peace and national security.


Huzaima Bukhari & Dr. Ikramul Haq, lawyers and partners of Huzaima, Ikram & Ijaz, are Adjunct Faculty at Lahore University of Management Sciences (LUMS), members Advisory Board and Visiting Senior Fellows of Pakistan Institute of Development Economics (PIDE).

Abdul Rauf Shakoori is a corporate lawyer based in the USA and an expert in ‘White Collar Crimes and Sanctions Compliance’. They have recently coauthored a book, Pakistan Tackling FATF: Challenges and Solutions         

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